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Owe Someone Money? Just Bump Your Phones

By Claire Cain Miller March 15, 2010 7:43 pmMarch 15, 2010 7:43 pm

People have predicted the death of cash and checks for a long time. But there are certain transactions — like paying a friend back for dinner or buying vegetables at the farmers’ market — for which they remain essential.

PayPal‘s new iPhone application could finally change that. It promises to let you quickly divide a restaurant bill and send a friend the portion you owe just by bumping your iPhones together.

The application is free to download from the App Store. Users log in with their PayPal credentials or with their cellphone number and a numeric PIN, and they can send or request money and manage their account on the phone.

To send money, users choose a recipient from their cellphone contacts or bump two phones together. For that, the app uses technology from Bump Technologies, which developed it to swap contact information between two phones. The money is transferred immediately.

The app includes a feature to help split a check, factoring in tax and tip and whether someone owes more than the others at the table. Payments are free from a bank or PayPal account, and there are varying fees if the payer uses a credit card.

There are other companies trying to offer similar services, including Obopay, which we have covered, but they have not caught on in a big way. PayPal’s original text-message service, which started in 2006, did not take off either.

But now might be the time, for a few reasons. PayPal’s iPhone app is easier to use than the text-message service, in part because people do not have to remember the exact language to use in their messages. People are getting more comfortable with the idea of using their phones to pay for things. And most are familiar with PayPal — 80 million people actively use it on the Web and 200 million are registered.

Just over a million people were willing to use PayPal’s first iPhone application, which came out last year and only lets people send money and view their transaction history. The number of PayPal mobile transactions climbed from 24 million in 2008 to 140 million in 2009, according to Eric Duprat, PayPal’s general manager for mobile.

The new app is for individuals and small businesses, like a flower stand. PayPal plans to create an app for merchants in the future, Mr. Duprat said. One competitor is Square, Jack Dorsey’s new start-up, which lets people turn their iPhones into credit-card terminals.

PayPal’s brand name will help it succeed as the field grows more crowded, Mr. Duprat said. “It is difficult to differentiate, except with your brand.”

In addition to person-to-person payments with cellphones, PayPal has ventured into mobile commerce. Last year, people spent more than $500 million using eBay’s mobile apps, which incorporate PayPal.